David Wheeler, Pro Vice-Chancellor (Sustainability) at the University of Plymouth and Dean of the Plymouth Business School, here analyses the race to decarbonise the World's two most important economies.
As the world waited with bated breath for the re-election of President Barack Obama and the transfer of leadership from Hu Jintao to Xi Jinping in the People’s Republic of China, events in both countries served to emphasise the urgency of strong political leadership on environmental policy, both East and West.
The return of Obama to the White House following the devastation of Hurricane Sandy was interpreted by some as a small vote for action on climate change. With his subway still partially under water, Mayor of New York Michael Bloomberg endorsed Obama just five days before the election asserting the President’s environmental credentials.
And whether or not ordinary Americans linked Hurricane Sandy to anthropogenic climate change, they have given Obama a second chance. In his celebration speech the President affirmed “We want our children to live in an America that isn't burdened by debt, that isn't weakened by inequality, that isn't threatened by the destructive power of a warming planet.”
While it is indeed welcome that the largest economy in the world (for now) is run by a President who appears determined to address the domestic risks of climate change, it was in Beijing that more decisive policies were being fashioned. For it is in China, not in the US, that rapid economic growth creates the most spectacular environmental risks and perhaps the greatest opportunities for innovation in sustainable energy, transportation and agriculture.
In the run-up to the 18th National Congress of the Communist Party of China there was clear recognition of the momentous environmental challenges the world is facing, and the increasing responsibility of the world’s second largest economy to address those challenges.
According to the English language China Daily, official Party commentary acknowledged that “Problems have emerged in the country's economic development, including unreasonable energy consumption and environmental pollution, causing some to doubt whether the world can survive a China living an American lifestyle.”
Popular unrest over environmental pollution continues to grow in China, with street protests successfully halting the $8.8bn expansion of a Sinopec petrochemical plant in Ningbo in October. Warnings are issued on a regular basis by state environmental protection agencies concerned about water, soil and air quality issues. Persistent photochemical smog remains a serious environmental health issue in many of China’s largest cities. And Chinese scholars have estimated that the Chinese economy is incurring environmental costs as high as 8.9% of Gross National Income, compared to just 0.5% in Germany.
But things are changing fast. In China’s new Energy Policy 2012, released in late October, the State Council announced that China wants to cut CO2 emissions per unit of GDP by up to 45% by 2020 (compared to 2005 levels). The Chinese Government promises strong support for hydro-electricity, biomass, wind and solar energy generation. And – doubtless spotting a massive export opportunity for Chinese technology - China has signalled the resumption of its domestic nuclear power generation programme as part of a commitment to reach 15% non-fossil fuel electricity generation by 2020.
In pursuing such a radical transformation in its energy mix, China is taking to heart the advice of business experts that supporting domestic markets for clean energy will enable China to compete globally in the development, sale and deployment of 21st century energy technology.
In a report for WWF released in June 2012: Clean Economy, Living Planet – The Race to the Top of the Global Cleantech Market, authors Arnoud van der Slot and Ward van den Berg of strategy consultants Roland Berger noted that by 2015, the ‘cleantech’ sector could be as large as €290 bn - up from €200 bn in 2011. Fastest growing suppliers to the global cleantech market in 2010/11 were Taiwan (+36% on the 2009/2010) and China (+29%). India and South Korea were tied at +19%.
But most telling of all is that China’s absolute sales of cleantech equipment (€57 bn in 2011), are now greater than both the EU (€47 bn) and the US (€37 bn). As a proportion of clean tech sales to GDP, at 1.7%, China is well placed between Denmark (1st) and Germany (3rd) in the ranking of economies focused on green manufacturing. Around half of these sales are wind and solar technology.
According to the WWF report, in 2011 seven of the world’s top 10 public flotations in cleantech industries were Chinese companies. And loan guarantees of more than $40bn were provided to seven Chinese companies in the solar energy business in the same year.
Given the continuing weakness of the European and US economies, and the massive investments in cleantech R&D being made by Chinese and South Korean businesses, there can hardly be any doubt that it will be East Asian businesses, and not European or American firms that will be dominating many cleantech growth opportunities in coming decades. The predicted $100bn per annum global ocean energy industry is one very obvious candidate as infrastructure moves offshore and where Chinese engineering strengths will supplement her leadership in wind technology.
As long ago as 1995, strategy guru Michael Porter wrote in the Harvard Business Review: “Successful environmentalists, regulatory agencies and companies will reject old trade offs and build on the underlying economic logic that links the environment, resource productivity, innovation and competitiveness.”
It appears the Chinese were listening. They may have some way to go on resource efficiency and pollution control, and sponsoring the global proliferation of nuclear power may make many environmentalists squeamish, but which other country is promising 5 million electric and plug in hybrid vehicles on the road by 2020?
David Wheeler is Pro Vice-Chancellor (Sustainability) at the University of Plymouth and Dean of the Plymouth Business School.